CFTC Told to Keep Swap Dealer Rule Narrow

WASHINGTON - Two U.S. lawmakers warned
regulators on Thursday not to cast too wide a net over companies
that trade swaps as the agency works to finalize rules defining
who is designated as a swap dealer.

In a letter to Commodity Futures Trading Commission Chairman
Gary Gensler, the top Democrat and top Republican on the Senate
and House of Representatives agriculture committees said they
feared an overly broad definition would harm businesses that use
swaps to hedge risks, such as oil price moves or interest-rate
fluctuations.

"We would urge the commission to consider that many
commercial end-users, particularly those with inherent physical
commodity price risk, actively trade in swaps to facilitate
hedging of those risks," wrote Senate Agriculture Chairwoman
Debbie Stabenow and House Agriculture Chairman Frank Lucas.

"The final rule should clarify that these activities do not
constitute "swap dealing."

The 2010 Dodd-Frank Wall Street overhaul law requires the
Securities and Exchange Commission and CFTC to jointly impose
stringent new regulatory requirements on companies such as
Goldman Sachs Group Inc and Morgan Stanley, which
deal heavily in derivatives products.

Any company dubbed a swap dealer or major trader of swaps
will be required to set aside more capital and margin. Dealers
will also be subject to new business conduct standards.

Lawmakers and "end-user" companies such as General Electric
Co and Ford Motor Co that use swaps to shield
themselves from market risks such as commodity price and
interest-rate moves fear regulators may go too far and subject
them to the regulations.

Regulators have long since missed a deadline to write the
final swap dealer definition rule, but for months now, they have
continued to delay a final vote as they struggle to agree on a
final definition.

Gensler told reporters earlier this month that regulators
are "very, very close" to finishing the rule.

On March 15, the SEC also released its own economic analysis
using data on credit derivatives to help inform how the final
rule will be crafted. The agency said it would accept comments
on the analysis and finalize the rule with the CFTC in the next
several weeks.

One area of disagreement between the SEC and CFTC has
centered on what threshold should be used to determine which
companies will be classified as swap dealers.

Earlier this month, the CFTC and SEC were in talks about
setting the threshold at $3 billion, which would be based on the
notional value of a company's annual swaps trade.

Stabenow and Lucas, who each chair the congressional
committees that oversee the CFTC, did not make any specific
recommendations on how to craft the definition. But they
stressed regulators should ensure that credit institutions that
offer loans in connection with swaps should not be subjected to
the same regulations swap-dealing banks will face.

They noted that it was the intent of Congress to exempt
these smaller credit institution from the swap dealer rules.

"This provision ensures that the flow of credit can continue
between businesses and small to mid-size lenders and farm credit
institutions," they wrote.
(Editing by Andre Grenon)